A House of Cards

A House of Cards

Published on
October 21, 2022

Today I decided to talk about one of the issues you might have seen going about on social media recently about pyramid and crypto scams and how our young men are killing each other over the same. It is important you know what they are and learn how to identify them so that you do not find yourself or a loved one at a huge loss.

To do this, I have chosen to contrast how it’s done legally with how it’s done illegally.

Multi-level Marketing (MLM)

This is also called network marketing. It is where individuals sell products to the public, often by word of mouth and direct sales. The main idea behind the MLM strategy is to promote the maximum number of distributors for the product and exponentially increase the sales force.

The promoters get commission on the sale of the product as well as compensation for sales their recruits make. Understand that the compensation plan in multi-level marketing is structured such that commission is paid to individuals at multiple levels when a single sale is made so it depends on the total volume of sales generated.

If you join an MLM program, the company may refer to you as an independent distributor, participant or contractor. Most MLMs say you can make money two ways:

  1. by selling the MLM’s products yourself to “retail” customers who are not involved in the MLM
  2. by recruiting new distributors and earning commissions based on what they buy and their sales to retail customers

Your recruits, the people they recruit, and so on, become your sales network, or downline. If the MLM is not a pyramid scheme, it will pay you based on your sales to retail customers, without having to recruit new distributors.

However, note that most people who join legitimate MLMs make little or no money. Some of them even lose money. In some cases, people believe they’ve joined a legitimate MLM, but it turns out to be an illegal pyramid scheme that steals everything they invest and leaves them deeply in debt.

Some of the popular MLMs include GNLD, World Ventures and Herbalife.

Pyramid Schemes

These are, however, fraudulent schemes, often disguised as MLMs. Pyramid schemes are scams. They can look exactly like legitimate MLM business opportunities and often sell actual products, maybe even ones you've heard of. But if you become a distributor for a pyramid scheme, it can cost you and your recruits — often your family and friends — a lot of time and money that you won’t get back.

The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same. They will try to recruit you with pitches about what you’ll earn, how you can change your life, finally quit your job and get filthy rich. That’s a lie! Your income would be based mostly on how many people you recruit, not how much product you sell.

Often in a pyramid scheme, you’ll be encouraged or even required to buy a certain amount of product at regular intervals, even if you already have more inventory than you can use or sell. You may also have to buy products before you’re eligible to be paid or get certain bonuses. You may have to pay repeated fees for other items, like training sessions or expensive marketing materials.

In addition, the company may say you can earn lavish rewards, like prizes, bonuses, exotic vacations, and luxury cars. However, it often turns out that you have to meet certain product purchase, recruitment, training, or other goals to qualify for the rewards, and only a handful of distributors ever qualify.

Eventually, most distributors find that no matter how hard they work, they can’t sell enough inventory or recruit enough people to make money. They also can’t keep up with required fees or the inventory purchases they need to make to qualify for rewards, and they can’t earn enough money to cover their expenses. In the end, most people run out of money, have to quit, and lose everything they invested.

Here are some warning signs of a pyramid scheme:

  1. A warning sign that you're dealing with a pyramid scheme is if there's a lot of pressure to act quickly and buy more products than you can resell.
  2. Promoters make extravagant promises about your earning potential. Stop. These promises are false.
  3. Promoters emphasise recruiting new distributors for your sales network as the real way to make money. Walk away. In a legitimate MLM program, you should be able to make money just by selling the product.
  4. Promoters play on your emotions or use high-pressure sales tactics, maybe saying you’ll lose the opportunity if you don’t act now and discouraging you from taking time to study the company. Leave by the nearest exit. Any company that tries to pressure you to join is one to avoid.
  5. Distributors buy more products than they want to use or can resell, just to stay active in the company or to qualify for bonuses or other rewards. If you see this happening, keep your money.

The difference between a pyramid scheme and a lawful MLM program is that MLMs are legal, legitimate network marketing companies with an actual product while in pyramid schemes, there is no real product. Participants attempt to make money solely by recruiting new participants into the program.

There are numerous pyramid schemes currently on facebook and outside of social media. You need to be able to identify it when you see it and if you choose to join, know that you are joining a pyramid scheme. You might recognise some like DIPEK or Public likes, both of which eventually collapsed with lot's of people's money.

Pyramid schemes are illegal and unethical as they necessarily involve embellishment and deception but IF you choose to join one, understand where on the pyramid you stand and how long it will take for you to earn money or for the pyramid to run out of recruits. Be smart!

How to protect yourself

1. Legitimacy

Learn more about the company, by finding and studying the company's track record. Do an internet search with the name of the company with words like review, scam, or complaint. Look through several pages of search results. Find out:

a. how long the company has been in business

b. whether it has a positive reputation for customer satisfaction

c. what the buzz is about the company and its product on blogs and websites

d. whether the company has been sued for deceptive business practices

2. Unreasonable or impromptu demands

Don't pay or sign a contract in an "opportunity meeting." Take your time to think over your decision. Your investment requires real money, so don't rush into it without doing some research first. Ask your sponsor for the terms and conditions of the plan, including:

a. the compensation structure

b. your potential expenses

c. support for claims about how much money you can make

d. the name and contact information of someone at the company who can answer your questions

They should be willing, able and happy to answer your questions.

3. Avoid any plan where the reward for recruiting new distributors is more than it is for selling products to the public.

That's a time-tested and traditional tip-off to a pyramid scheme.

Keep in mind that when you recruit new distributors, you are responsible for the claims you make about how much money they can earn. Be honest, and be realistic. If your promises fall through, you could be held liable, even if you are simply repeating claims you read in a company brochure or heard from another distributor. If you don't understand something, ask for more information until it is absolutely clear to you.

4. Research what distributors are saying

Individual distributors often post their own training videos online to promote the MLM or pyramid. Search for these materials. Be suspicious if the trainings make earnings claims, tell you that the fastest way to make money is to “recruit, recruit, recruit,”.

5. Consider the products

These companies may sell quality items at competitive prices. But some offer goods that are overpriced, have questionable benefits, or are downright unsafe to use. For example, be very skeptical about health products advertised as having “miracle” ingredients or guaranteed results. Those claims are generally false or at least unproven and, at worst, the products could be dangerous.

6. Read the paperwork and have a friend or advisor review it

Read the company’s sales literature, business plan, disclosure documents, and any contracts or agreements you’ll need to sign. Ask an accountant, a lawyer, or someone else you trust — and who is not affiliated with the company — to help you review the MLM’s materials.

7. Talk with current and past distributors

Ask tough questions and dig for details. Don’t consider it nosy or intrusive.

Is an MLM right for you?

If you’re considering joining an MLM, know that some MLMs — even legitimate ones — may not be a wise investment. Other MLMs may not be a good fit for your interests and lifestyle. Here are some tips to help protect yourself against a bad MLM experience.

Ask yourself these questions

  1. Do you want to be a salesperson? If you don’t like selling, or if you’re uncomfortable asking people you know to put their time and money into a business venture, joining an MLM is a bad idea.
  2. Do you have a solid sales plan? Consider whether you have friends and family who will buy this product from you over and over again. Think about how you would find and keep other regular customers. Can people buy something like this product elsewhere, maybe for less?
  3. What are your income goals?
  4. Can you afford to risk the money and time? Every business venture has risks. MLMs are no different. Even if the start-up costs seem low, additional expenses can add up quickly, from travelling, hosting to training. If you need to borrow money or use your credit card to finance your expenses, you may face hefty interest charges too.

Remember, you’re on a mission to check out a potential business deal that will require your time and money. The information you learn can help you decide whether it’s really a deal or illegal.

There are innumerable legitimate investments that exit that are suitable for you. There is something for everyone. Please do not be tempted to join these programmes fro quick money. They prey on need and desperation. Protect yourselves and your loved ones from predators that are out to take all.

A fool and his money...

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